Who’s a wealth manager?

I have heard of instances recently where existing IFA firms have simply added the term “wealth management” to their description. Handed the “independent” label in the RDR, some IFAs think they can really strut their stuff.

I have to sound a note of caution – wealth management is now the fashion, so it must be dangerous. For proof, consider that some Barclays’ branches have recently carried all-over ads for Barclays as wealth managers.

Why should high-street banks be on a mission to destroy the cachet and perceived upmarket values of wealth management?

By definition, this cannot be a mass market product nor even a mass affluent product or service. Every marketer knows that virtually nobody defines themselves as wealthy, even millionaires, who always know someone with a bigger villa and yacht whom they see as really wealthy.

Wealth is the ideal word to use for a service intended to appear head and shoulders above the crowd. No longer.

Why should we worry about gimmicky marketing and semantics? Because the history of the industry tells us that is a good indicator of what is about to go wrong, either spectacularly or dismally.

In practice, the banks’ wealth management divisions have not been independent as defined by the FSA. They have sold clients lots of bank products, especially structured products, where the banks’ provider profits are invisible to the investor, even if the transaction costs are transparent – and this could, I suspect, be quite a large if, at least historically.

If the banks reckon they cannot get away with independence for their wealth management divisions – and they may have thrown in the towel on this issue – then the next best thing would be to use it as a label for an upmarket restricted advice proposition.

This would make a lot of sense for them, since managing delivery of a restricted advice proposition is a piece of cake (and potentially far more profitable) compared with managing a wholeof-market independent proposition.

So turn the clock forward a couple of years and imagine every high-street bank is touting its restricted advice proposition as wealth management. Simplified advice will be the gruel on offer downstairs in the branches for those who do not ask for more.

As an IFA, do you want to position your firm so you are seen in the same bracket as these dumbed-down dinosaurs?

I find it odd that having won the painful battle over independence, which really is the gold standard in the RDR proposals, some IFAs now seem keen to relegate it to a footnote.

If I am right, there will not actually be many IFA firms after 2012 – my bet is that the IFA consolidator firms will try to run restricted and independent advice propositions in parallel, with their primary offering being restricted.

I think the CPMA may have its work cut out with firms that pretend to offer independent advice but, in fact, only offer it to a tiny minority of clients.

I hope the CPMA is prepared to use its hobnailed boots on them and ensure that the IFA label is only used by firms that really do make that their primary offering.

As for genuine wealth management, while the really wealthy may pay trusted advisers fat retainers, they will never pay an annual 1 per cent for advice. They will, as they always have, prefer to be fleeced gently through transactional charges.

Chris Gilchrist is director of Churchill Investments and editor of The IRS Report

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24th May 201912:17 pm

Comments

There are 7 comments at the moment, we would love to hear your opinion too.

Unless or until the FSA or its successor defines in precise terms its view of the criteria to be met for either a provider or an intermediary to hold themselves out as a “wealth manager” (which it may have done, though I’ve not read of it), this article seems to me to be little more than a well written page filler.

Wealth management means different things to different people. Chris would have us believe that its use is intended to portray a certain cachet of exclusivity, hopefully to keep the time-wasters at bay and attract Mr & Mrs HNW. But the fact is that there aren’t that many HNW clients to go round. We’re all hungry to get our share of the most lucrative corner of the market but in reality most of us have to settle for what we can get and hope for the occasional big fish to come our way once in a while.

I am a wealth manager ~ on a very modest scale. I choose with great care the component funds of my clients’ investment portfolios, large and small, and I review them regularly. I report to my clients how their portfolios are performing and I make the occasional judicious recommendation for change.

A lot of vastly bigger “wealth managers” than I, especially the banks, don’t provide those ongoing services. Rather, they hope, by virtue of their size, profile, marketing budget, swish offices and access to what their banking customers have in their accounts, to attract large investment sums with large commissions. For many firms, that’s all the wealth manager moniker is, really ~ just an image. I could employ more sophisticated and technical mechanisms for doing what I do, though I whenever I think about it I find myself wondering whether or not all these high-falutin’ portfolio analysis and management tools really achieve that much more than little old me.

So just what is wealth management, beyond choosing an appropriate blend of products with optimal tax efficiency in mind, taking care over asset allocation and fund selection, reviewing them regularly and keeping the client informed in terms that /she can understand? Until the regulator issues some clear guidelines (don’t hold your breath), we don’t really know, do we?

I recently wrote to a client about the advice a bank had attempted to give him. I pointed out that the term wealth manager was widely used by advisers employed by banks and that it was misleading-on the grounds that some potential bank clients might be misled into thinking it was the customer’s wealth the advisers were attempting to manage…….

It may be predictable, given the name of my firm, that I have no issue with Wealth Management as a description. After all, the independent financial adviser label has been abused by many over the years so what’s in a name?

Wikipedia defines it thus : Wealth management is an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services. High Net Worth Individuals (HNWIs), small business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management. Wealth managers can be an independent CERTIFIED FINANCIAL PLANNER™………

Chris Gilchrist has re-opened the age old argument of how, as IFA’s, we describe ourselves. Are we IFA’s, Financial Planners, Wealth Managers (or Financial Engineers as I know one firm calls themselves)?

I am sure that Chris Gilchrist is only trying to stir up debate as he knows that he is being disingenuous when he states that by calling yourself a Wealth Manager is a bad idea. When all is said and done, how your clients judge you is based on what you do and not what you call yourself.

A bizarre article. My ideas of wealth management surround wealth preservation and accumulation. Therefore an IFA is well postioned to deliver these areas right from simple term assurance right up to diversified investments and pensions etc. To think wealth management as a limited area would be foolish!

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